8 Things You Need to Know about Singapore Technologies Engineering

Few companies have had such a range of activities as ST Engineering, and that contributed to the company being one of the largest on the SGX today. As the company’s name suggests, technology is a core part of its business. The stock was formed in 1997 after a merger of 4 stocks: ST Aerospace, ST Electronics, ST Automotive, and ST Marine merged to form ST Engineering. 

Stock information

Ticker symbol: S63

Market cap: S$11.49B

Industry: Aerospace and Defence

The Business

With a history going back to 1967 and now employing over 23,000 people to serve a customer base across Asia, Europe, and the US, Singapore Technologies Engineering now has a pretty diverse range of businesses with innovation at the core of all of them. ST Engineering is involved in aerospace, defense, smart cities, and public security and is now one of the largest companies listed on the SGX. 

The company splits its business into 3 segments:

Source: ST Engineering’s FY2021 Annual Report

1. Commercial aerospace 

• The company does aircraft maintenance, repair, and overhaul (MRO), also manufactures aircraft parts such as those for aircraft engines, and floorboard panels used in the body of an aircraft, and also convert passenger planes to freighters.

2. Urban Solutions and Satcom 

• ST Engineering manufactures a complete set of computers and sensors to allow vehicles to navigate autonomously. On top of that, they also offer fleet management systems for both buses and taxis, making them an ideal partner for operators in Singapore. 
• The company is involved in selling vehicles as well: they’re the only importer of MAN Buses in Singapore and Myanmar and have partnered with BYD to sell electric buses and vans. ST Engineering also makes road paving equipment, including asphalt-paving vehicles.
• Also owns a platform called the AGIL IoT Platform used for creating “smart cities” allowing operators to manage street lights, waste management, and lift monitoring. To date, the company has deployed over 15 million wireless sensors and smart solutions that transform cities in places like the UK, the US, Canada, France, New Zealand, Brazil, and India. Most recently, the AGIL platform is set to manage 300,000 street lights and 25,000 sensors in Rio de Janeiro.
• ST Engineering iDirect also helps internet service providers by providing internet and communication platforms to reach more remote areas, SMEs, Small Offices and Home Offices, cars, and trains, and provides satellite communication solutions for maritime vessels, aircraft, and governments. 
• Also through iDirect, ST Engineering is the market leader in direct-to-home (DTH) in satellite broadcasting.

3. Defense and Public Security

• ST Engineering does MRO for military aircraft and armored fighting vehicles, and they’re also involved in designing and building a range of naval ships. They also produce military-grade cybersecurity and communication systems to allow infantry units to work better.
• Vessel management systems, operation management systems, emergency response systems, and surveillance are also some of their products.

Source: ST Engineering’s FY2021 Annual Report

Although Defence and Public Security take up most of both revenue and net income, it’s worth noting that most revenues are from sources outside of defense, as the company mentions below.

Source: ST Engineering’s FY2021 Annual Report

Key Opportunities

    Digitization

Much of the global economy including both developed nations and developing ones is gradually digitalizing its operations, and ST Engineering is in a perfect position to take advantage of this trend. With products from street light management and public transportation management to digital security systems and emergency response systems and even military-grade vehicles, the company makes itself an ideal provider of tools to help a country modernize itself and keep up with technological trends.

    Autonomous vehicle growth

Unless you’ve been living under a rock, you’d probably know that the electric vehicle market is a growing one due to its increased efficiency as well as its environmentally friendly nature. With ST Engineering as the sole distributor of BYD trucks and vans in Singapore, they have a significant head-start in this market. It’s also worth noting that the company has a solid customer base in the form of new customers and customers who have bought their other products, such as operators who use their fleet management systems or cities who use their operating systems.

Cross-selling products

That brings us to another opportunity the company may have. Given their remarkably diverse range of products, they may be able to sell some of their other products to existing customers, including larger-scale customers like airlines, military units, or even local governments.

Aircraft MRO will likely pick up

As tourism resumes, the company’s aerospace operations are likely to improve as airlines see more activity. As a result, Aerospace revenues would pick up and take up a bigger part of revenues. As recently as the first half of FY2022, the Commercial Aerospace segment’s EBIT is up 78% year on year, with management saying that recovery is well underway.  

Key Risks

    Prolonged semiconductor shortage

Starting in the pandemic, there was a shortage of semiconductors in various parts of the world. Given that much of ST Engineering’s products are technology related and require semiconductors, this turned out to be a significant hurdle for the company and further worsened the company’s performance throughout the pandemic. Several estimates say that the semiconductor shortage will last to near the end of FY22 so the worst may be over, but if this lasts any longer, ST Engineering’s profits are likely to take further hits, albeit unlikely due to the higher capital spending and increased capacity the industry is seeing. 

Geopolitical tensions

As ST Engineering is a global company, increased geopolitical tensions may cause further supply chain disruptions. As shown in the figure below, the company gets much of its revenue from Asia, but also gets a fair amount from the US and Europe as well so revenues may take a hit if diplomatic relationships between certain countries turn sour.

Source: ST Engineering’s FY2021 Annual Report

Valuation

As of September 20, 2022, the stock is selling at about 20.5x its trailing twelve-month earnings, roughly in line with its 5-year average PE of 21.86x. It trades at a price/book value of 4.92x and a dividend yield of 4.88%

Financials

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Investor Relations

Tel: (65) 6722 1818 

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Contact

Top Shareholders

No.	Name	No. of Shares held	%
1	Temasek Holdings (Private) Limited	1,554,764,574	49.96
2	Citibank Nominees Singapore Pte Ltd	390,152,616	12.53
3	DBSN Services Pte. Ltd.	231,205,145	7.43
4	DBS Nominees (Private) Limited	161,819,675	5.20
5	HSBC (Singapore) Nominees Pte Ltd	145,288,397	4.67

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